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Nation’s big banks kick off Q1 with slower loan demand and signs of weakness in the economic recovery

The finance sector’s quarterly earnings period began Friday with JPMorgan and Wells Fargo reporting a profitable first quarter yet worrying market watchers as both banks showed weakness in new loan demand along with lower revenues. Both banks offset lower profit margins on loans by setting aside less money to cover bad mortgage loans.

JPMorgan Chase & Co. (JPM), the nation’s largest bank, saw a 33% rise in profits to a record $6.53 billion, with earnings per share of $1.59, compared with last year’s $4.92 billion and EPS of $1.19. Wells Fargo & Co. (WFC), the nation’s largest mortgage lender, reported $5.2 billion in profits, up 22%, with EPS of $0.92 versus last year’s $4.2 billion in profits and EPS of $0.75.

“JPMorgan Chase had a very good start to the year,” said Chairman and CEO Jamie Dimon (left) in a statement. “All our businesses had strong performance, and our client franchises did exceptionally well. The Corporate and Investment Bank was No. 1 in fees, global debt and equity, syndicated loans and announced M&A.”

However, Dimon acknowledged continued weak spots in the economy that were a drag on the bank’s performance.

“Loan growth across the industry has been softer this quarter, although year-on-year growth remained strong. Small businesses remain cautious about the recovery and fiscal uncertainty, and are not investing their capital,” Dimon said.

Similarly, Wells Fargo’s nearly 30% of the mortgage market helped the bank maintain its 13th consecutive quarter of profitability, yet WFC shares were off in Friday trading. WFC traded at $37.08 by midafternoon, down 0.43 points, or 1.16%, versus Thursday’s $37.51 close. Revenue at Wells was down 1.7% to $21.26 billion after the bank took a 2.6% hit to its mortgage business and low interest rates hurt profitability despite an 8% rise in deposits.

“Wells Fargo delivered outstanding first-quarter 2013 results for our shareholders,” said Chairman and CEO John Stumpf in a statement. “Quarterly earnings and EPS increased at double-digit rates compared with first-quarter 2012, while loans and deposits demonstrated continued growth in a challenging economic environment. In addition, expenses continued to decline as we improved efficiency across the franchise, and returns on assets and equity increased and remained among the highest in our industry.”

Separately, J.P. Morgan Asset Management saw its 16th consecutive quarter of positive net long-term client flows at a record $31 billion for Q1 and record assets under supervision at $2.2 trillion, with loan balances up 27% to a record $81.4 billion. JPAM reported a 1% quarter-on-quarter loss in client advisors to 2,797 from 2,821 but a 2% rise in retirement planning services participants, to 2.01 million from 1.96 million. The asset management unit also reported a 1% year-on-year loss in advisors, who numbered 2,832 in Q1 2012, but a 4% rise in retirement participants from 1.93 million to the current 2.01 million.

Wells’ Wealth, Brokerage and Retirement unit reported net income of $337 million, up 14% from a year ago but down 3% from Q412. Client assets for the retail brokerage were $1.3 trillion, up 5% quarter on quarter and up 7% year on year. Financial advisors in the retail brokerage were reported at 15,354, flat from Q412 and up 1% from a year ago.